Report: 'Secret Sins' of Koch Industries

Charles and David Koch, the secretive billionaire brothers behind the Koch Industries, are a huge financial force in the conservative political movement. According to one estimate, they've contributed more than $100 million to conservative political causes, and a foundation that they back has trained thousands of Tea Party activists.

But now reporters for Bloomberg Markets magazine have published an article about what the magazine calls Koch Industries "secret sins" -- including business deals with Iran -- that the reporters claim reflect the same hostility to regulation that powers the Koch brothers' politics.


David H. Koch, 71, and Charles Koch, 75, together own Koch Industries, a Wichita, Kansas-based company started by their father Fred. The privately-held, $100 billion-dollar-a-year company owns such subsidiaries as Georgia Pacific and the maker of Lycra and Stainmaster carpets, but is best-known for its oil and energy business. Koch owns thousands of miles of pipelines and refineries in several states.

In a recent documentary, David Koch can be seen addressing Tea Party leaders and espousing American values, saying, "The American dream of free enterprise, capitalism is alive and well."
But now questions are being raised about the American values of the source of the Koch brothers' wealth.

 

This week's edition of Bloomberg Markets reveals that one Koch Industries subsidiary was trading with Iran and that another subsidiary in France was paying bribes to get business in six different countries.

In one previously undisclosed document from a French labor court case, Koch Industries admits the payments are "violations of criminal law." A company spokesperson told ABC News that the letter relates only to the conduct of the employee fired in the bribery case and "does not discuss or concern United States law or the company's potential liability."

"It's a document right there in the court record, out of the lips of Koch Industries," said David Evans, one of the co-authors of the Bloomberg Markets article.

David Koch declined to speak when ABC News caught up with him outside his Park Avenue apartment in New York City and asked him to respond to the magazine's allegations.
In a statement posted online, Koch Industries accused Bloomberg Markets magazine of "substandard reporting" and said the company obeys the law.

"Koch Industries and its affiliated companies are committed to compliance," said the statement, "and Koch companies strive to live by their Guiding Principles, including most importantly Principles 1 and 2, which require that all business dealings are conducted lawfully, with integrity, and in compliance with all laws."


Koch Industries says it fired those responsible when it learned of the bribes in 2008, but as a private company it was able to keep all of that secret until this week's article.
"I think there are enough of these payments that I think any prosecutor would want to look further," said John Coffee, a professor at Columbia University Law School and director of the school's Center on Corporate Governance. "The only issue that I think Koch has by way of defense is showing that these payments were never authorized, encouraged or ratified by the parent company, but were only done by the foreign subsidiary."

The trading with Iran involved Koch subsidiaries in Germany and Italy providing key components for a huge state-owned petro-chemical plant, despite a U.S. ban on trade with Iran since 1995.
http://abcnews.go.com/Blotter/koch-industries-report-reveals-secret-sins/story?id=14676652
One order was placed on January 29, 2003, the day after President Bush told Congress in his State of the Union message that Iran continued to be an enemy of the U.S. that "represses its people, pursues weapons of mass destruction and supports terror."

Koch Industries says the trade was legal because it was done through a foreign subsidiary and no Americans were involved.

Said Asjylyn Loder, a co-author of the Bloomberg Markets article, "You're still dealing with a state that is considered by the U.S. State Department to be a sponsor of terrorism." Koch Industries says it finally stopped trading with Iran in 2006.

Pickens Losing to Koch in Billionaires’ Natural-Gas Feud

July 12 (Bloomberg) -- BP Capital LLC Chairman and Chief Executive Officer T. Boone Pickens talks about the prospects of Congress passing a Pickens-backed bill to subsidize natural-gas vehicles, opposition to the bill from fellow billionaire Charles Koch and the outlook for oil prices. He speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

Charles Koch, left, opposes a bill proposed by T. Boone Pickens, right, that would provide tax breaks to purchase natural-gas fueled trucks. Sources: Koch Industries and Clean Energy Fuels

The Pickens bill would provide tax credits of as much as $64,000 for the purchase of natural gas long-haul trucks, and lesser amounts for lighter vehicles. A natural gas long-haul truck refuels at the Port of Long Beach. Source: NGVAmerica

T. Boone Pickens, who’s been saying for more than a year that Congress was poised to pass his plan to subsidize natural-gas vehicles, may not have been expecting opposition led by fellow billionaire Charles Koch.
Pickens, 83, the chairman and chief executive officer of BP Capital LLC., a Dallas-based energy investment fund, has spent $82 million since July 2008 promoting the use of domestically produced natural gas to power cars and trucks, according to Jay Rosser, his spokesman.
Koch Industries Inc., Dow Chemical Co. (DOW) and the American Conservative Union all have weighed in since May against a Pickens-backed bill that would provide tax breaks to purchase natural-gas fueled trucks. The critics say it would provide unwarranted subsidies to companies such as Clean Energy Fuels Corp. (CLNE), a Seal Beach, California, maker of natural-gas fueling stations in which Pickens is the biggest shareholder.
“We do not believe government should be picking ‘winners and losers’ in the marketplace,” Phillip Ellender, president and chief operating officer for government and public affairs at Koch Companies Public Sector LLC, a subsidiary of Koch Industries, wrote in a June 23 letter to Congress.
Charles Koch, 75, is chairman and chief executive officer of Wichita, Kansas-based Koch Industries, which calls itself one of the world’s largest closely held companies. He is also a co- founder of Americans for Prosperity, a group that says it advocates limited government and opposes the natural-gas legislation.

‘Working for America’

“So here you are: Charles Koch working for Koch, Boone Pickens is working for America,” Pickens said today in an interview on Bloomberg Television’s “InBusiness With Margaret Brennan.”
Koch’s company imports crude oil, gains from ethanol subsidies and is in the fertilizer business, which benefits when natural gas is inexpensive, Pickens said.
“We oppose all government mandates and subsidies because they artificially skew economic signals about price and demand, thereby creating inefficiencies that divert resources from productive activities to politically favored ones,” Ellender said in an e-mailed response to Pickens. “To add a new subsidy in these times of increasing unemployment and economic hardship for so many Americans is irresponsible and bad public policy.”

$64,000 Credit

The Pickens bill, dubbed the Nat Gas Act, would provide tax credits of as much as $64,000 for the purchase of natural gas long-haul trucks, and lesser amounts for lighter vehicles.
On Nov. 17, Pickens told Bloomberg News the bill had “more than a 50-50 chance” of passing in the lame-duck session of Congress after that month’s midterm elections. In April, he told CNBC the bill had overwhelming support on Capitol Hill.
“Boone has an uncanny ability to predict the energy markets,” spokesman Rosser said. “Clearly, predicting what Washington will and won’t do is another matter. Boone is an eternal optimist and remains convinced that Washington will act soon and deliver the solution to four decades of failed promises to address the OPEC oil crisis.”
Since the lobbying campaign against Pickens began, 14 House Republicans have withdrawn support for the legislation. Representative Todd Akin, a Missouri Republican, grew “increasingly uncomfortable with the level in which the U.S. government would be dictating winners and losers in energy development,” spokesman Steve Taylor said in an interview.

Bipartisan Support

The measure is still backed by 108 Democrats and 75 Republicans. That’s more bipartisan support than for a proposal to expand offshore drilling that passed the House and failed in the Senate.
“I’m actually beating him,” Pickens said of Koch today in an interview at Bloomberg headquarters in New York. “Koch knocked out 14, and we recovered about that.”
The fight over the Pickens plan underscores the obstacles energy measures involving subsidies or tax breaks face as Washington’s political debate centers on how to reduce the federal deficit.

Companies Split

It also shows a split among companies over what to do with the increasing U.S. natural-gas supply. Natural gas has sold at an average of $4.288 per million British thermal units this year, down from a high of $13.577 in 2008.
The U.S. has 2,543 trillion cubic feet of recoverable natural-gas resources, according to the 2011 energy outlook by the U.S. Energy Information Administration. That’s about 1,000 trillion cubic feet more than its estimate in 2000. Most of the increase comes from projected supplies in shale formations, where the industry is injecting water, chemicals and sand under high pressure to release the gas from the rock.
AGL Resources Inc. (AGL) of Atlanta and San Diego-based Sempra Energy (SRE), which distribute natural gas, support the Pickens bill, which would give them new customers.
Dow of Midland, Michigan; Eastman Chemical Co. (EMN) of Kingsport, Tennessee; and the American Forest and Paper Association, a trade group in Washington, were among 61 chemical and agricultural companies and trade groups signing a May letter that said “the speed of our increasing dependency upon natural gas” may raise costs and force “good U.S. manufacturing jobs to overseas competitors.”
Representative John Sullivan, an Oklahoma Republican and a sponsor of the Pickens measure, said subsidies are justified given concern over oil imports and the 500,000 jobs the bill may create.
“I’m not a tax-and-spend liberal,” Sullivan said in an interview. “This is something we must do.”

$195,000 Truck

A long-haul truck that runs on natural gas can cost $195,000 to buy, about $100,000 more than the same vehicle powered by diesel fuel, according to Vaughn Jennings, a spokesman for Sullivan. The 8 million heavy-duty trucks in the U.S. consume about 2 million barrels of oil a day, about 10 percent of the nation’s daily appetite for oil, he said.
About 112,000 natural-gas vehicles are on the road in the U.S., according to Natural Gas Vehicles for America. The bill will “jump-start the market,” Richard Kolodziej, president of the Washington-based group, said in an interview.

‘Billionaire Boondoggle’

The U.S. can’t afford breaks for particular energy industries during a “debt crisis of massive proportions,” said Kristy Campbell, a spokeswoman for the American Conservative Union, which advocates lower government spending, in an e-mail.
The Alexandria, Virginia-based organization called the bill a “T. Boone Pickens billionaire boondoggle” in a statement last month, and said any Republican senators who support the legislation risk getting a lower score on the group’s ratings of conservatives.
Sullivan, who got a 100 percent rating from the group last year, said the conservative group backed a broader energy bill Republicans released in 2009 that included tax breaks for natural-gas vehicles, in addition to expanding oil production in places such as the Arctic National Wildlife Refuge.
The legislation is “the only energy bill out there” that can pass Congress, Sullivan said in an interview.
As evidence of its broad appeal, backers point to support from both President Barack Obama and Representative Ron Paul, a Texas Republican and Tea Party favorite.
“These credits reduce taxes for the production or purchase of vehicles that run on American-made natural gas,” Paul said in a statement released June 27. “These credits are not subsidies.”
Obama called similar legislation to provide incentives for the purchase of natural gas vehicles “a big deal” in a March 30 speech at Georgetown University.
“Congress cannot manage but one bill at a time,” Pickens said on Bloomberg TV, predicting anew that the Nat Gas Act will pass this year. “So you’re either hung up on health care or you’re hung up on the debt or you’re hung up on the budget.”
The bill is H.R. 1380.

WHY WE GET FAT

The LPL (an enzyme called lipoprotein lipase ) on fat cells is regulated by the presence of insulin. The more insulin our body secrets, the more active the LPL becomes on the fat cells, and the more fat that, rather than being consumed as fuel by the muscle cells, gets stored in fat cells. As if designed to ensure we get fatter, insulin also reduces the LPL expressed by the muscle cells (to ensure there is lots of fat floating around for the fat cells). That is, it tells the muscle cells not to burn fat as a fuel.

Insulin also influences an enzyme called hormone-sensitive lipase, or HSL. And this, says Taubes, "may be even mroe critical to how insulin regulates the amount of fat we store. Just as LPL works to make fat cells (and us) fatter, HSL works to make at cells (and us) leaner. It does so by working inside the fat cells to break down triglycerides into their component fatty acids, so that those fatty acids can then escape into the circulation.

The more active this HSL, the more fat we liberate and can burn from fuel and the less, obviously, we store. Insulin also surpresses this enzyme HSL and so it prevents triglycerides from being broken down inside the fat cells to a minimum." This also helps explain why diabetics often get fatter when they take insulin therapy.

Carbohydrates primarily determine the insulin level in the blood. Here quantity and quality are important. Carbs ultimately determine how fat we get. But most people eat carbs so why are some fatter than others? We all naturally secrete a different level of insulin -- given the same food people will secrete different levels of insulin. Another factor is how sensitive your cells are to insulin and how quickly they become insensitive.

The more insulin you secrete—naturally or with carbohydrate rich foods—the more likely it is that your body becomes insulin resistant. The result is a vicious circle.

Not all foods containing carbs are equally fattening. The most fattening foods are those that have the greatest impact on our insulin and blood sugar levels. These are the easily digestible carbs. Anything made of refined flour (bread, cereals, and pasta), starches (potatoes, rice, and corn), and liquids (beer, pop, fruit juice). "These foods," says Taubes, "flood the bloodstream quickly with glucose. Blood sugar shoots up; insulin shoots up; We get fatter."